FAQ – Copy
Frequently Ask Questions
What is Forex trading in plain words?
Forex trading is the trading of foreign currencies. Currencies like the U.S. dollar (USD), Euro (EUR), Canadian dollar (CAD), British pound (GBP), Australian dollar (AUD), New Zealand dollar (NZD), Swiss franc and many others freely float in value against each other in financial instruments known as currency pairs. For example, a commonly traded currency pair is EUR/USD, which pits the Euro against the U.S. dollar. When the Euro goes up in value against the U.S. dollar, EUR/USD will go up. When the U.S. dollar rises in value compared to the Euro, the EUR/USD will go down.
What books should I read to learn about Forex trading?
Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves by Kathy Lien is a tremendous all-around book.
It gives you a strong introduction to the craft of Forex trading and takes you right on through to some pretty deep topics.
Currency Trading for Dummies by Kathleen Brooks and Brian Dolanbro is a great book for beginners. It provides a good grounding in Forex trading, familiarizing you with the terms and teaching you the ropes of Forex trading.
Is a pip the base metric in Forex trading? What is a pip?
A pip is the smallest indivisible unit in the Forex market. You will often hear or read about a 20-pip move or a 50-pip move. Most Forex pairs are expressed with four digits after the decimal point. But those with Japanese Yen (JPY) as the second currency in the pair are expressed with only two digits after the decimal point. So, for example, a pip of USD/JPY is .01, while for EUR/USD, the pip is .0001
Who is Forex trading for?
Forex trading is for anyone who wants to make investments in the currency market. The features that distinguish the Forex market from the stock or commodities markets include:
24/5 market–doesn’t close except on the weekends easier access to leverage easier access to shorting since each pair is set up in opposition to another currency. Forex is well-suited for people who have limited time to trade, but can also be traded short-term using strategies like scalping or high-frequency trading. Scalping and high-frequency trading are very short-term strategies and not for someone who wants a passive income stream. The closest Forex comes to a passive activity is trading on a long-term timeframe, which in Forex can be a few months or years. You could earn a passive income on the interest difference between the two currencies. This is known as a carry trade.
How does leverage work in Forex trading?
Leverage is usually specified in ratios like 10:1 or 20:1. This means that for every one unit of currency you have in your account, you get 10 (10:1) or 20 (20:1) units of trading power. The money in your account must maintain margin requirements, or you will face margin calls. For example, if your account holds 1,000 USD and your leverage is 10:1, you have USD 10,000 in trading power. If you make a trade worth $9,500 and the value of the Forex pair drops below USD 9,000, it means you are over $1,000 in the hole. This means that you don’t have sufficient funds to pay your losses. You could receive a margin call at that point. This means that your trades will be immediately closed because you do not have enough margin to secure the losses.
What are alternatives there for Forex trading?
Alternatives to Forex trading include stock trading, cryptocurrency trading, and commodities trading. Stock trading is much stricter in its regulations. It is much more challenging to get approved to use leverage and to get approval to sell stocks short. The stock market is also closed overnight and on weekends.
The commodities market is open for trading even less often. Commodities include goods like crude oil, natural gas, corn, and metals. Signing up for an account with a commodities broker is similar to signing up to trade Forex. You will need to provide various information to the broker, and if they feel you are an acceptable risk, they will give you an account.
Cryptocurrency trading is in its infancy. The utility of cryptocurrency is low and price changes are mostly driven by hype and market sentiment as opposed to fundamental or technical factors. Some in the financial community does not consider them investments.
Copy-trading lets you essentially piggyback on the trades of someone else. This is possible in Forex and the stock market as well.
Some brokers who say they are Forex brokers do not offer actual Forex pairs. They offer something called CFDs (contracts for difference). Trading in CFDs means that instead of buying and selling the actual Forex pair, you buy and sell CFDs to pay or be paid the difference in price. CFDs are a way to gain the benefits of trading Forex without actually owning Forex pairs. CFDs are popular with brokers who sell a lot of different financial instruments like commodities and cryptocurrency.
Who is the founder of Forex trading?
The modern Forex market began to take shape in 1971 when the Bretton Woods system of fixed exchange rates was eliminated. This is generally credited to Richard Nixon. Various other agreements prevailed until 1973 when the developed world began to allow their currencies to float against each other freely. Trading in Forex was limited to large financial institutions, and the rise of the Internet in the 1990s and Forex trades began offering the ability to trade online.
Where does Forex trading take place?
The Forex market is a global market whose orders route around the world. So if you are located on the east coast of America, your orders might go through New York during the day, but after closing time, your order would be routed through somewhere else, perhaps Tokyo or London. And since Forex is a global market with such flexibility, you can also trade Forex online from anywhere in the world.